Foreclosure Process Issues. NCSL Fall Forum. December 10, 2010

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1 Foreclosure Process Issues NCSL Fall Forum December 10, 2010 Meghan Sullivan Mortgage Bankers Association

2 Judicial vs. Non-Judicial Foreclosure Two types of foreclosure: very different processes Regardless of type, time frames and requirements vary widely from state to state Broad range of timelines from first missed payment to title transfer Loan servicers exhaust all home retention options: Beginning within a month of a missed payment Continue all the way to title transfer Efforts include, but not limited to, outbound calls and solicitations to educate borrower on foreclosure alternatives Modification programs Short sales Deeds in lieu 2

3 Judicial Foreclosure Court Proceeding:» Begins when lender files a complaint and records the notice in public land records announcing claim on the property Complaint:» Announces claim to potential buyers, creditors, interested parties» Describes the debt, default, and amount owed» Asks the court to allow the lender to foreclose and take possession of the property Homeowner served notice of complaint by:» Mail, in person, or publication Requirements vary by jurisdiction 3

4 Judicial Foreclosure Borrowers may dispute any of the facts in the complaint by:» Answering the complaint» Filing a separate lawsuit» Attending a hearing If the borrower shows material differences of facts:» Case goes to trial to determine whether foreclosure should occur» However, the vast majority of judicial foreclosure cases are undisputed because the borrower is in default and cannot offer facts to the contrary 4

5 Judicial Foreclosure Court determines whether:» Homeowner did default» The debt is valid Issues judgment in favor of servicer for total amount owed» Includes costs for the foreclosure process Judge determines final amount owed» Servicer submits paperwork through an affidavit that itemizes the amounts due Court authorizes sheriff s sale» Open to anyone, must be held in a public place» Procedures differ by locality 5

6 Judicial Foreclosure States using judicial procedures as the primary way to foreclose: Connecticut Louisiana South Carolina Delaware Florida Hawaii Illinois Indiana Iowa Kansas Maine New Jersey New Mexico New York North Dakota Ohio Oklahoma South Dakota Vermont Wisconsin Kentucky Pennsylvania 6

7 Judicial Foreclosure 7

8 Non-Judicial Foreclosure Requirements vary widely by state» Procedures established by state statute» No court intervention» Mortgage documents in non-judicial states give lenders the power of sale outside of the judicial process in the event of an uncured default When default occurs, servicer mails the borrower a default letter» In many states, a notice of default is recorded at or around the same time 8

9 Non-Judicial Foreclosure Homeowner may cure the debt during a prescribed period If the borrower does not cure:» Notice of Sale is: Mailed to the homeowner Posted in public places Recorded at the county recorder s office Published in newspapers/legal publications Borrower may file suit to enjoin the sale if he/she disagrees with the facts Public auction held at expiration of legally required notice period.» Highest bidder becomes owner of the property 9

10 MBA s National Delinquency Survey- Q Delinquency rates decreased to a seasonally adjusted rate of 9.13% of all loans outstanding Decrease of 72 basis points from the Q Decrease of 51 basis points from one year ago Foreclosure actions were started on 1.34% of loans in Q Increase of 23 basis points from Q Decrease of eight basis points from one year ago 10

11 Blight Prevention: Accelerated Transfer Of Abandoned Property Goal: to move vacant/abandoned properties quickly into the hands of new owners who will care for the property s upkeep. Shortening the foreclosure timeline for abandoned properties is an effective tool to prevent blight, crime, and safety hazards associated with vacant homes Colorado HB 1249:» Effective from August 2010 until August 2013» Shortens the time to foreclosure sale from days to days» Court may order an expedited sale if clear and convincing evidence proves the property is abandoned and no appearance is made to oppose the motion» Affidavit affirming that the property is vacant must accompany the motion for expedited foreclosure sale» Documentary evidence and/or pictures of the conditions must be attached to the affidavit 11